Key takeaways from SEBIs board meeting

SEBI held its board meeting on Monday which was headed by its chairman, Ajay Tyagi, whose term is about to end. In this board meeting, SEBI took some major decisions. Let’s find about what all were discussed and what the key pointers of this meeting are:

Regulatory Sandbox Framework

Before moving ahead, let us first understand what ‘Regulatory Sandbox’ is. Regulatory Sandbox is a live testing environment where new products, processes, services and business models can be deployed on a limited set of eligible customers, for a specified period of time, with certain relaxations in the extant SEBI rules and regulations.

All the entities registered with SEBI under Section 12 of the SEBI Act 1992, are eligible for testing within the Regulatory Sandbox. They can participate on their own or use the services of a FinTech firm. Even if it uses the services of a FinTech firm, they will be treated as the principal applicant and will be solely responsible for testing of the solution in the sandbox.

For Regulatory Sandbox, SEBI has considered the cross-domain approach, wherein, the entity will be permitted to test the solutions for activities that are not yet registered.

SEBI (Investment Advisers) Regulations, 2013

In the past, SEBI had issued four consultation papers on the review of a regulatory framework for Investment Advisers (IA), seeking comments from the public on the proposals that were intended to reinforce the regulatory framework for IA. Following are the major regulatory changes approved by the board:

1. To avoid conflict of interest at the client level, a corporate entity registered as SEBI Registered Investment Adviser (RIA) must segregate its advisory and distribution activities. However, for an individual RIA, they are not allowed to provide distribution services.

2. For the convenience of the investors, IA is allowed to provide implementation services (execution) through direct schemes or products in the securities market.

3. For greater transparency, it has made mandatory on the part of IAs to have an agreement with its clients, incorporating all the keyterms and conditions regarding its investment advisory services.

4. To bring clarity in the payment of fees, upper limit on the fees charged to investors has been introduced.

5. Enhanced eligibility criteria for registration as an IA, including net worth, qualification and experience requirements, will be grandfathered for the existing individual IAs from complying with the enhanced qualification and experience as specified by the board.

6. Individual dealing in the distribution of securities barred from using the nomenclature ‘Independent Financial Adviser (IFA)’ or ‘Wealth Adviser’ or any other similar name, unless registered with SEBI as IA.

Amendments to SEBI (Mutual Funds) Regulations, 1996 pertains to:

1. In order to reduce the concentration of custodial services for gold or gold-related instruments, SEBI approved the proposal to amend SEBI (Mutual Funds) Regulations, 1996 by allowing the non-bank custodians in addition to bank custodians to offer custodian services for gold or gold-related instruments of Gold Exchange Traded Funds (ETFs).

2. Currently, the investment by the sponsor or Asset Management Company (AMC) is mandatory in all schemes except for close-ended schemes. In order to bring uniformity across all schemes, SEBI has decided that the sponsor or AMC must also invest in close-ended schemes.